Will an Ohio court hold the other side to the forum we picked?
In the commercial context, yes, subject to a three-part test. The Supreme Court of Ohio held forum selection clauses in arm's-length commercial transactions between business entities to be valid and enforceable irrespective of the number of contacts with the forum state, and rejected a minimum-contacts analysis for that question (Kennecorp). Kennecorp's own holding is that absent evidence of fraud or overreaching a forum selection clause in a commercial contract between business entities is valid and enforceable unless it is clearly shown that enforcement would be unreasonable and unjust, such clauses being prima facie valid in the commercial context so long as the clause has been freely bargained for and enforcement does not deprive litigants of their day in court. Preferred Capital describes the Kennecorp test, taken from that decision's syllabus, as: (1) are both parties to the contract commercial entities? (2) is there evidence of fraud or overreaching? (3) would enforcement of the clause be unreasonable and unjust? The Court applied that same test to a 'floating forum' clause whose forum changes with the location of the entity holding the interest in the lease payments, and held the Kennecorp rule still applies.
The trap
Kennecorp draws its standard from The Bremen, and the Court set out both halves: such clauses should be enforced 'unless it is clearly shown that enforcement would be unreasonable and unjust, or that the clause was invalid as being a product of fraud or overreaching'. Two limits worth keeping in view. First, the first prong is real (Preferred Capital quotes appellate authority that 'in Ohio, forum-selection clauses are less readily enforceable against consumers'), and the Court rejected the small-business appellants' attempt to put themselves on the consumer side of that line, holding that if both parties are for-profit commercial entities the relative size or sophistication of the parties is not a material factor. The consumer sentence itself is a First District line the Court quoted, not a holding of its own. Second, Kennecorp expressly distinguishes Schulke Radio as a conflict-of-law case, so the choice-of-law test and the forum test are not the same test in Ohio.
8 authorities
- case66 Ohio St.3d 173Kennecorp Mortgage Brokers, Inc. v. Country Club Convalescent Hospital, Inc.Ohiodecided 1993read it at the source ↗
The words that state the rule
The determinative issue in this appeal is whether a forum selection clause contained in an arm’s-length commercial transaction between two business entities is valid and enforceable, irrespective of the number of contacts involved with the forum state. For the reasons that follow, we hold such clauses in the commercial contract context to be valid and enforceable
- case66 Ohio St.3d 173Kennecorp Mortgage Brokers, Inc. v. Country Club Convalescent Hospital, Inc.Ohiodecided 1993read it at the source ↗
The words that state the rule
The high court in The Bremen also opined that such forum selection clauses in the commercial contract context should be enforced, unless it is clearly shown that enforcement would be unreasonable and unjust, or that the clause was invalid as being a product of fraud or overreaching.
- case112 Ohio St.3d 429Preferred Capital, Inc. v. Power Engineering Group, Inc.Ohiodecided 2007read it at the source ↗
The words that state the rule
In Kennecorp, we adopted a three-pronged test, similar to the test in Bremen, to determine the validity of a forum-selection clause: (1) Are both parties to the contract commercial entities? (2) Is there evidence of fraud or overreaching? (3) Would enforcement of the clause be unreasonable and unjust? Kennecorp, 66 Ohio St.3d 173 , 610 N.E.2d 987 , syllabus.
- case112 Ohio St.3d 429Preferred Capital, Inc. v. Power Engineering Group, Inc.Ohiodecided 2007read it at the source ↗
The words that state the rule
Commercial forum-selection clauses between for-profit business entities are prima facie valid. * * * By contrast, in Ohio, forum-selection clauses are less readily enforceable against consumers.” Information Leasing Corp. v. Jaskot, 151 Ohio App.3d 546 , 2003-Ohio-566 , 784 N.E.2d 1192, ¶ 13 .
- case66 Ohio St.3d 173Kennecorp Mortgage Brokers, Inc. v. Country Club Convalescent Hospital, Inc.Ohiodecided 1993read it at the source ↗
The words that state the rule
Contrary to defendants’ argument, we find Schulke Radio, supra, to be readily distinguishable from the instant cause, since Schulke Radio involved a conflict of law issue rather than the forum selection provision issue found herein. Unlike the court of appeals in United Std., supra, we believe that the essential nature of a forum selection clause demands a different type of analysis. While research indicates that forum selection clauses have not been enforced in the past as being against public policy, see Annotation, Validity of Contractual Provision Limiting Place or Court in Which Action May Be Brought (1984), 31 A.L.R. 4th 404 , we believe that the better and more modern view is that such clauses are prima facie valid in the commercial context, so long as the clause has been freely bargained for.
- case66 Ohio St.3d 173Kennecorp Mortgage Brokers, Inc. v. Country Club Convalescent Hospital, Inc.Ohiodecided 1993read it at the source ↗
The words that state the rule
Based on the reasoning set forth in The Bremen, supra, and Burger King, supra, we believe it is clear that forum selection clauses in the commercial contract context should be upheld, so long as enforcement does not deprive litigants of their day in court. Therefore, we hold that absent evidence of fraud or overreaching, a forum selection clause contained in a commercial contract between business entities is valid and enforceable, unless it can be clearly shown that enforcement of the clause would be unreasonable and unjust.
- case112 Ohio St.3d 429Preferred Capital, Inc. v. Power Engineering Group, Inc.Ohiodecided 2007read it at the source ↗
The words that state the rule
This type of forum-selection clause has been called a “floating forum clause.” While this distinction is important in the application of the test, we conclude that the rule set forth in Kennecorp still applies.
- case112 Ohio St.3d 429Preferred Capital, Inc. v. Power Engineering Group, Inc.Ohiodecided 2007read it at the source ↗
The words that state the rule
As we articulated in Kennecorp , forum-selection clauses should be distinguished between commercial and noncommercial parties. If both parties are for-profit, commercial entities, the relative size or sophistication of the parties is not a material factor.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.